GMR Infrastructure is likely to revise its plans to auction the 2 million sq ft of mall space it has at New Delhi’s Indira Gandhi International Airport as potential bidders have expressed reservations to certain clauses relating to tenure of the lease hold, people familiar with the developments told FE. Sources said that GMR Infra is now likely to develop an office complex or a hotel on the plot.
In April this year, five firms had expressed interest in the auction, including the Mumbai-based mall development companies, Phoenix Mills and K Raheja Corporation. Other bidders included Delhi-based real estate major, DLF, Bharti Land, the development arm of Bharti Realty, and private equity (PE) fund, Xander. According to sources, after an initial interest, these companies expressed their reservations regarding certain terms of the proposed contract, mainly pertaining to the tenure of the lease hold.
Two companies that had been interested parties in the auction said that the tenure, the ownership rights and the estimated cost put together made the project financially unviable for them.
The initial lease is for a tenure of 20 years, with a caveat for an extension for another 30 years. Mall developers said it will take a minimum of five years to have the mall up and running and then another few to break even. But terms surrounding the extension seems to have scuppered the deal.
GMR Infrastructure spokesperson denied any such development.
Sub-leasing is a well established and popular way of executing infrastructure and hospitality projects but it is relatively new and untested in the retail segment. So far, in the country, only one mall has been developed on a sub-leased land. What appears to have given players cold feet is the fairly large investment, an estimated Rs 2,000 crore, that is required to execute the 2 million sq ft development. Moreover, currently, most successful malls in the country are not larger than 1 million square feet and a mall twice that size is uncharted territory for developers. DLF Mall of India, which is the only one comparable to the one proposed opened only seven months back and is too new to provide meaningful evidence. The proposed mall was meant to cater to airline passengers as also to nearby residents.
Although there was no reserve price set aside for the auction, conditions mandated an upfront payment of approximately Rs 350 crore. Each party interested in the auction could tailor its own offer. Apart from construction cost, there would be periodic land and interest payments. In total, the cost of the project was estimated at almost Rs 2,000 crore. Some experts thought flexibility in milestone payments would sweeten the deal.